Government may have to cut development spending if oil prices were to slide further, says AllianceDBS

-A +A

KUALA LUMPUR (Jan 20): The government would have to restrain its spending further, possibly extending budget cuts to the development expenditure, if crude oil prices were to slide further down to US$40 per barrel, said Manokaran Mottain, economist from AllianceDBS Research.

“Therefore, we maintain a cautious stance on the overall economic outlook for now,” he said in a research note today.

He said the government’s review of the budget was necessary to address the current concerns on the domestic economic resilience, citing that the reviewed budget estimates are realistic at the current crude oil price level.

“We think that the government’s measure to raise additional revenue via effective tax collection (through GST) and tightening its belt by trimming operating expenditure, send a positive signal that it is committed to its fiscal consolidation path.”

Meanwhile, he added that the decision to leave the originally allocated RM48.5 billion development expenditure untouched, also affirms the government’s commitment to nurture growth.

On trade balance, if there were to be a deficit, he expects it to be short-lived.

“We maintain our view that the current account surplus would narrow further in 2015, estimated at around 1% to 2% of gross national income (GNI).”

Although the government’s spending has reduced following the budget review, Manokaran has maintained his 2015 GDP target at 5% for now, but with downside bias.

He maintained the view that the ringgit would average around the band of RM3.40 to RM3.50 per USD, for the current year.